S&P 500 nabs best gain in a month as Fed reassures: stock market live blog recap

April 9, 2014, 9:36 AM ET

We\’re live blogging the U.S. stock market\’s action on Wednesday. You can read a wrap of pre-market actions here and — shortly after the opening bell — get a compact rundown of the stock market in Market Snapshot.

Markets risk “disappointment” in an environment of rising interest rates unless equity valuations become better supported by rising earnings, capital investment, and aggregate demand, the International Monetary Fund said Wednesday as part of its global financial stability report.

The IMF said U.S. equity prices are in line with the long-term trend on price-to-equity ratio but looks stretched on the Shiller P/E ratio, which takes into account 10 years of earnings. The report more broadly said financial stability has improved in advanced economies, as the IMF continued to express concern on the impact the Federal Reserve’s less-accommodative policies will have on emerging markets.

The focus of the financial markets will shift in the afternoon to the release of FOMC minutes at 2 p.m. Eastern with investors looking for further clues on the Federal Reserve’s stance on the monetary policy.

“Overall we expect them to be more hawkish than Yellen’s 3/31 speech, but still not enough to reverse the ‘buy the coupon sentiment’,” said CitiFx’s Steven Englander in his note.

One important outstanding issue is whether there is a discussion of whether rate hikes are out of play for six, twelve or more months after QE ends. It would be more hawkish if the time period was discussed and six months was the consensus or conclusion.

Stocks are higher, as the market begins to undo the damage done in its recent selloff. Eric Marshall, director of research at Hodges Capital Management says it was a healthy pullback. He says much of the money that came out of the market remains on the sidelines, or has gone into bond funds.

Treasury prices retreated Wednesday, on pace to snap four consecutive days of gains after an auction of benchmark notes, and ahead of the release of minutes from the Federal Reserve’s last policy meeting.

Federal Reserve officials had a secret video conference call in early March to discuss overhauling its communication to the market and reached a general consensus that the 6.5% unemployment rate threshold for the first rate hike was outdated, the central bank said Wednesday.

A summary of the video conference was included in the minutes of the Fed’s March 18-19 meeting released by the Fed. On the conference call, the central bankers were clearly worried that changing the forward guidance would impact markets. They noted that, going into the video conference, the Fed and the markets were on the same page about the outlook for short-term interest rates.

The minutes of the March 18-19 meeting also reveal that there was concern that the markets would read too much into the “dot plot” which showed an upward shift in the Fed’s expectations for short-term rates. Officials also spelled out headwinds that would keep rates low even after the first rate hike. These headwinds included higher precautionary savings by consumers.

Doug Cote, chief investment strategist at ING U.S. Investment Management, says there are two things that stood out in the Fed minutes and both indicate a dovish stand that markets are liking:

Most participants revised down their GDP projections, which means they will want to stay accomodative

There are concerns about low inflation. PCE is at about 1.5% at the moment, well below the target 2% rate. This would mean rates will stay low for longer. And even when the rates are raised it will be done in a slow and measured way, without any shocks.

Strategists at Citi Private Bank want to remind investors that intra-year tumbles for riskier assets are to be expected:

“Periodic ‘counter-trend’ rallies and selloffs are the norm, rather than exception in markets,” said Steven Weiting and Shawn Snyder of Citi Private Bank in a note Tuesday. “Investors may forget that global shares suffered an intra-year correction of 24% within 2011 (-19% for U.S. shares) within the current, historic bull market recovery.”

Spring may be here, but winter provided an exciting three months where assets were “topsy-turvy,” says BlackRock, the world’s largest asset manager, with more than $4 trillion in assets under management.

The best performers of 2013 underperformed, while the 2013 losers came out on top, BlackRock says in its “2014 Outlook Spring Update.”

Gold for June delivery
/quotes/zigman/698029/realtimeGCM4 settled at $1,305.90 on Wednesday on the New York Mercantile Exchange before the release of the FOMC minutes, which came after the Comex close.

Prices for the contract climbed from the close to trade at $1,310.20 in the electronic session shortly after the minutes.

The idea that official rates are not going higher helped pull the rug from beneath the dollar as it slid to $1.3847 versus the euro. The S&P 500 index jumped by 8-points within 10-minutes of the release and has posted a session gain so far of 15.5-points (+0.83%) as of the time of this writing.

Repeated inflation warnings are getting on the Fed’s Charles Evans’s last nerve:

“I confess that I am somewhat exasperated by these repeated warnings given our current environment of very low inflation,” said Evans, the president of the Chicago Federal Reserve Bank, in a speech at an economic policy conference in Washington D.C. on Wednesday.

To debunk current arguments that inflation is just around the corner, he said that there is “substantial room” for stronger wage growth without inflation pressures building. He added the Fed’s large balance sheet is not a “classic warning sign” of inflation.

“Our agency conversations indicate FB’s traction with brands is growing, and that mobile sponsored stories and app installs continued growing healthily in first quarter,” said Brian Nowak, an analyst at Susquehanna.

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